186x Filetype XLSX File size 0.04 MB Source: jwilson.coe.uga.edu
Principal $100.00 Interest 5.00% Time(Years) Annual Interest Rate Initial Investment Interest Earned Year 1 5.00% $100.00 $5.00 Year 2 5.00% $105.00 $5.25 Year 3 5.00% $110.25 $5.51 Year 4 5.00% $115.76 $5.79 Year 5 5.00% $121.55 $6.08 Pn = value at the end of so many periods pv = present value or beginning value r = interest rate (constant in this case) n = number of periods For our case, we have Pn = 100*(1+.05)^5 If you type = 100*(1+.05)^5 into a column and press enter, it will give the answer $127.63 which is what we calculated above. The last one was simple interest and we didn't calculate interest on let's say a bank account. With compound interest we are going to account for every year in the total amount. So let's say we put an initial amount of $100.00 in our bank account. After year 1 with 5% interest, we will have $105.00. Now, with compound interest, $105.00 is our new beginning amount for year 2. We must multiply (105)(0.05) to get our interest payment. Thus, our total will be 105 + (105)(.05) = 105 + 5.25 = 110.25 dollars. For the third year, our beginning amount will be $110.25 with an interest rate of 5%. Thus our total after year 3 will be $110.25 + (110.25)(.05) = $110.25 + $5.51 = $115.76. Formula Pn = pv*(1+r)^n 140 Account Value $105.00 $110.25 $115.76 120 $121.55 $127.63 100 Pn = value at the end of so many periods pv = present value or beginning value r = interest rate (constant in this case)80 Annual Interest Rate n = number of periods Initial Investment For our case, we have Pn = 100*(1+.05)^5 Interest Earned If you type = 100*(1+.05)^5 into a column and press enter, it will give the 60 Account Value answer $127.63 which is what we calculated above. The last one was simple interest and we didn't calculate interest on let's say 40 a bank account. With compound interest we are going to account for every year in the total amount. 20 So let's say we put an initial amount of $100.00 in our bank account. After year 1 with 5% interest, we will have $105.00. Now, with compound interest, $105.00 is our new beginning amount for year 2. We must 0 multiply (105)(0.05) to get our interest payment. Thus, our total will be Year 1Year 2Year 3Year 4 Year 5 105 + (105)(.05) = 105 + 5.25 = 110.25 dollars. For the third year, our beginning amount will be $110.25 with an interest rate of 5%. Thus our total after year 3 will be $110.25 + (110.25)(.05) = $110.25 + $5.51 = $115.76. 140 120 100 80 Annual Interest Rate Initial Investment Interest Earned 60 Account Value 40 20 0 Year 1Year 2Year 3Year 4 Year 5
no reviews yet
Please Login to review.